Page 8 - Poland Outlook 2024
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2.3 Inflation and monetary policy
When it comes to inflation and the National Bank of Poland’s (NBP’s) monetary policy in 2024, the consensus assumes a temporary easing of price growth even to the upper ban of the central bank’s deviation from target – so to around 3.5% y/y – early in the new year.
Later in the year, however, inflation is expected to grow back up even to around 7% y/y, although the exact expansion rate and the timing are unclear as they will depend much on political decisions whether to end the lower VAT on basic foods and unfreeze energy prices.
Still, what the Monetary Policy Council (RPP), the central bank’s monetary policy body, will do is far from certain, with forecasts ranging from freezing the rates at their current level of 5.75%, to a cut (or cuts) of up to 100bp, which would take the rates down to 4.75%.
It seems, however, that the consensus is leaning – albeit not so strongly - to no dovish moves in 2024. Macro-economic conditions expected in 2024 rule out a smooth ride to the NBP’s inflation target of 2.5% (give or take 1pp), analysts say.
“The long-feared problem becomes a fact. Monetary easing [in 2022] was premature and most likely based on conditions that were temporary,” mBank said in an analysis.
“Dominated by base effects, inflation should reach a bottom in March/April. Afterwards, acceleration is on the cards ... with the strong labour market, double-digit nominal wage rises (with hefty real disposable incomes growth) that will not only leave cyclical inflationary pressure intact but reinforce it,” mBank also said.
“The inflation trajectory for the next year remains rather uncertain, largely dependent on the policy decisions of the [new] government. We expect inflation to circulate around 5% throughout next year,” Erste said.
“With the inflation outlook uncertain, we see the pause in the easing cycle to be at least two or three quarters long. Crucial inflation developments will come by the end of June, when we will have more clarity on whether the price pressures have eased for good,” Erste also said.
A possible dovish scenario has been outlined by PKO BP, which assumed that with the stabilisation of CPI inflation towards the target [in early 2024], the NBP may decide to adjust the interest rates in March, cutting them by 25bp to 5.5%.
“We also expect that by mid-2024, major global central banks (the Fed and ECB) will start lowering interest rates. We assume that at this point, all banks in the region will also ease monetary policy,” PKO BP said in an analysis.
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